Now that we are putting the PSM on hold. It makes sense to move to our next best option to restore the peg - lowering the Liquidation Ratio on USDC-A. Lowering the Liquidation Ratio to near 100% will effectively give us a mechanism similar to the the PSM for the purposes of this short term farming demand.
One thing to note is that, since USDC auctions are currently disabled, we need to take care to make sure there is enough of a buffer that we do not end up with unbacked Dai due to accumulating Stability Fees. It is for this reason I am also suggesting we consider lowering the USDC-A Risk Premium as well.
As an example, if we maintain the current rate of a 4% Risk Premium and the Base Rate stays at 0%, then we give ourselves a little over 1 year of buffer at a liquidation ratio of 105%. If we were to set the Risk Premium to 0% then we would effectively have no time limit to get the auctions in at any liquidation ratio.
In terms of timelines - I’m hearing from Rune anything above 6 months is a conservative estimate to delivery for the USDC auction support. Please correct me if I’m wrong on that.
Update (July 23rd): I’ve extended the deadline to next Wednesday, and added pros/cons for lowering the Liquidation Ratio.
- Approaching a Liquidation Ratio of 100% will allow stablecoin farmers a method to get into Dai that is more attractive than market buying at a premium.
- Allows for higher leverage shorting of the peg vs USDC.
- In general it improves capital efficiency not having to hold 20% extra USDC doing nothing.
- Higher leverage allows a single actor to more easily max out the debt ceiling. This makes Maker more prone to “trolling” behaviour where one or two actors squeezes legitimate actors out.
- Lowering the Liquidation Ratio decreases the amount of time the auctions team has to turn on the auctions. This is because the accumulating Stability Fees may put the collateral value under 100% of the Dai value.
Poll 1 - Lower the USDC-A Liquidation Ratio
- Keep the Liquidation Ratio at 120%
- Lower the Liquidation Ratio to 115%
- Lower the Liquidation Ratio to 110%
- Lower the Liquidation Ratio to 105%
- Lower the Liquidation Ratio to 101%
Poll 2 - Lower the USDC-A Risk Premium
- Keep the Risk Premium at 4%
- Lower the Risk Premium to 3%
- Lower the Risk Premium to 2%
- Lower the Risk Premium to 1%
- Lower the Risk Premium to 0%
This poll is being extended to Wednesday July 29th as the risk team does not believe this to be an emergency.